Options Review

Let’s say a trader bought a call option on stock XYZ with a strike price of 54, for $2 when XYZ was trading at $53. XYZ is now trading at $55.50. How much intrinsic value does this option have?

• $1.00

• $1.50

• $2.00

• $2.50

Answer explanation

The intrinsic value of an option is the difference between the strike price and the underlying stock's price. This is if the stock price is "in the money."

So, in this case, if the current price is $55.50 and your strike price is $54 your intrinsic value would be the difference between the two. Which is= $1.50.

True or False:

The options contract does not specify the strike price.

• True

• False

An option has an $85 strike price, a $2.05 cost for the buyer (not including commissions and fees), and it expires August 15. What is the price of the option?

• $85

• $205

• $2,005

• $2.05

Let’s say a trader buys a call option on XYZ with a strike price of $32 and an expiration of 30 days. If XYZ is currently trading at $35, at what price does the trader have the right to buy XYZ?

• $30

• $32

• $20

• $15

If you buy an option contract, you have to hold it until expiration

• True

• False

Which of the following needs to increase when I am a buyer of an Option?

• Extrinsic Value

• Intrinsic Value

How should I select my strike price when trading options?

• Stop Market

• Current Price

• Above current price

• My exit target

What should I do If the cost of the contract is larger than my risk tolerance?

• Shorter Expiration Date

• Select Out the Money

• Trade Shares

This indicator will likely let me know if the premium pricing is inflated

• Strike Price

• Expiration Date

• Extrinsic Value

• Intrinsic Value

True or False:

I should hold the contract until the expiration to breakeven.

• True

• False

Answer explanation

Your breakeven is a factor ONLY if you hold the contract until the expiration.

The IWT strategy does no teach holding contracts through expiration as a buyer.

You can exit the trade as soon as you are up in profit.